Gobble Gobble! It’s that time again!
Stock Gumshoe is mostly closed down for the holiday week, but we do have to continue our annual tradition of calling out our “Turkey of the Year” … so take a pause from that turkey brining and join us, won’t you?
What is this tradition, you ask?
Every year, as American families gather to give thanks, and perhaps to remind themselves of why they don’t gather more often, we take a moment to point out one of the truly dreadful stock picks that was teased by the newsletter promoters in the past twelve months.
It’s not a particularly scientific process — we usually have a good number of stocks to choose from that are down 70-90% or more from when they were touted, even during good “bull market” years, so we have to pick one from among a bunch of stinkers.
What makes a turkey stand out? Mostly, it’s the mismatch between promise and reality… or, sometimes, the surprise of the collapse. If you’re dealing with a biotech stock about to hit a big FDA decision, you should be going into that knowing that the “thumbs down” could lead to a 90% collapse, that’s why those stocks have the potential to gain 500% when things go the other way… risk and reward are inexorably linked.
So the Turkey of the Year is ideally a stock that performed terribly, defying some wild optimism from the promotion. Sadly, that also doesn’t usually narrow it down to a single winner… so we have to go with the unscientific poll of one: I get to decide. Don’t worry, you’ll have your chance to argue for your own turkey in a moment.
Who, then, are the candidates this time around? Who will win the 11th annual Turkey of the Year?
The bottom of the teaser tracking spreadsheet over the past year has seen its share of the usual suspects (we only consider stock teasers that we’ve written about since the Fall of 2017, and all of the worst performers this year were actually 2018 recommendations) — Chinese frauds, over-promoted microcap tech stocks, biotechs, junior miners and the like… along with whatever fad stocks have emerged over the past year (this year, the hottest fads have been marijuana stocks or “blockchain” stocks). And they’ve come from all kinds of newsletters — the tech hypesters, the value stock dreamers, the fad evangelists, the cheap letters and the expensive “upgrade” ones… everyone lays a big ol’ egg sometimes.
You can review the Stock Gumshoe teaser tracking spreadsheets if you’d like to see how these promoted stocks have typically done over time, but these are the candidates at the bottom of the spreadsheet that jumped out at me — pricing was as of Tuesday:
|Date||Company||Ticker||Newsletter||Editor||Publisher||Buy Price||Current Price||Percent Change||vs. S&P 500|
|3/28/2018||Leading Edge Materials||LEMIF||Junior Mining Monthly||Gerardo Del Real||Angel Publishing / The Outsider Club||$0.60||$0.20||-66.78%||-67.15%|
|3/5/2018||Terra Tech||TRTC||Marijuana Manifesto||Jimmy Mengel||Angel Publishing||$4.05||$1.06||-73.83%||-70.62%|
|6/5/2018||Indivior||INVVY||Chris Mayer’s FOCUS||Chris Mayer||Bonner & Partners||$33.77||$7.11||-78.95%||-74.16%|
|2/8/2018||Apricus Biosciences||APRI||Microcap X Advisory||Bob Byrne and James Altucher||Choose Yourself Financial||$2.31||$0.30||-87.01%||-88.01%|
So the easy place to start is with the simple numbers… there’s one stock that has done worse than the rest over the past twelve months, that being the Altucher-teased Apricus Biosciences (APRI)… but it’s also true that this one should have quite clearly been a roulette spin of a stock. That was a failed biotech trying to restart a drug that had been rejected years before, and the hype was wildly irresponsible (Byrne and Altucher touted it as likely to generate 54,000% gains), but I think most rational readers would have agreed with what I said in my article at the time: “My guess is that it could easily go up a couple hundred percent or down 90% in the next few weeks, and I don’t know which is more likely.”
Turned out, “down 90%” was the result (or close to it) — the stock lost about 2/3 of its value immediately on the bad FDA news the following week, and then drifted lower for months after that as the last investors gave up and left the building… it was down 90% at the lows, though it rebounded slightly (now only down 87%!) when APRI agreed to merge with Seelo Therapeutics to monetize Apricus’ last remaining viable assets: A Nasdaq listing; about $3.5 million in cash; and a few hundred million in tax-losses that the new company can presumably carry forward to offset any money they might make in some hypothetical future. This is not a terribly uncommon fate for a one-trick biotech stock.
What about the others?
Chris Mayer’s pitch for the opioid addiction-fighting Indivior (INDV in London, INVVY for the OTC ADR in the US) is an interesting stock to show up here — mostly because Mayer touted this as a “coffee can” stock that you should buy and put away for ten years…. which would certainly be a lot cheaper to do now at $7 a share than it was when he teased it in the low-$30s.
Indivior had a rough year in all kinds of ways… not only is Braeburn Pharmaceuticals still moving forward with an extended release drug that might compete with their Sublocade, with a PDUFA date coming for that next month, but their primary revenue generator, the sublingual Suboxone, has lost a bunch of legal decisions as it tried to keep Dr. Reddy’s from releasing generic versions, leading Indivior to downgrade their revenue and earnings forecasts. The reason Indivior makes it into this “bottom tier” of the spreadsheet is that we pulled the data today, not last week — the stock fell another 40% today as the US Court of Appeals ruled against them and pulled the injunction they had won in New Jersey over the summer, presumably allowing Dr. Reddy’s to move forward again with selling its sublingual Suboxone generic in the US. Since Dr. Reddy’s had eaten into Indivior’s market share pretty sharply even in the very brief time it was in the market, we can probably expect more of the same once Dr. Reddy’s gets back on the pharmacy shelves.
Hope for the future for Indivior lies in either the restoration of their monopoly rights on sublingual Suboxone, which remains popular but is obviously going to be far less profitable if they have to compete on price with Dr. Reddy’s… or in the growth of Sublocade, the once-monthly injection version of their opiate addiction treatment. If you’re looking for that Sublocade optimism, the company still has it — this is from their last quarterly press release:
“The Company confirms that FY 2018 SUBLOCADE™ net revenues are expected in the range of $8m to $10m. Indivior continued in the third quarter to work diligently to break down the barriers to accelerate SUBLOCADE™ uptake. As a result, payor formulary access and the prescription journey timeline approached targeted levels, the prescription dispense yield rate continued to improve and healthcare provider (HCP) adoption grew. In addition, anecdotal feedback from patients and HCPs remains very encouraging. The Company remains confident in its goal of peak SUBLOCADE™ net revenue of $1 billion-plus.”
So that’s a loooooong runway, from $10 million to $1 billion, and right now, at the $10 million level, Sublocade just can’t even begin to offset the falling earnings expectations for Suboxone… so really, for the stock to recover anytime soon you probably need both: You need Suboxone to recover and at least be close to stable as Indivior works to improve the Sublocade market, and, since Suboxone won’t keep generics at bay forever even if they win a court decision next time out, you need Sublocade to ramp up more quickly, which is a big “if” since it’s a pretty hard sell. Indivior is still a billion-dollar company, with the cost structure of a monopoly-owning pharmaceutical company, it hasn’t had to be nimble or flexible, so it might be a hard row to hoe.
There had to be a few marijuana stocks near the bottom of the teaser tables, that was pretty much a given in a fad-driven sector that has trouble providing any justification for stock valuations on a good day — but the one that actually trickled in as the marijuana loser was Jimmy Mengel’s tout of Terra Tech (TRTC), which seemed to be a company that was counting on pretty explosive growth of their branded IVXX products in California as recreational legalization took hold there… and that growth hasn’t really taken hold yet, as so many pot producers seem to be mired in this “being an actual business is way harder than dreaming about the future” part of the development timeline, with higher taxes hurting sales in California and higher costs weakening results across the board.
I have no idea how it will work out, but Terra Tech doesn’t really stand out to me as being terribly unique in this marijuana craziness — yes, Mengel was wildly optimistic in calling it the “Apple of Pot,” but the stock has moved similarly to a lot of other volatile small marijuana stocks. Yes, it was the worst of all the pot stocks we saw teased over the past year… but so many of them stunk that it’s hard to really bestow the Turkey title on just this one, other than to perhaps set an example so I can say lots of wise and cautionary things, in retrospect, about pot investing in general.
And the other candidate that stuck out was Leading Edge Materials (LEM.V, LEMIF), which has been teased a few times in the past both under this name and under some of its previous names, including Flinders Resources and Tasman Metals (they merged to create Leading Edge a couple years ago). And, in fact, Flinders made the short list for Turkey of the Year back in 2012 or 2013, so this particularly “story” stock (mostly a graphite story, though also rare earths metals now) has been disappointing for a very long time.
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It hardly seems fair, though, since Gerardo Del Real was promoting almost exactly the same thing in January of 2017 as he did ~15 months later this past Spring (including the same pointlessly specific “826% gains” that were seen as being just weeks ahead both times)… do we call this out as a turkey just because this year it finally got worse? The decline in the stock is the worst fall it’s seen since the collapse from mid-2014, but, well, at some point shouldn’t we just stop falling for these recurring stories of graphite riches? If the stuff was anywhere near as valuable and rare as teased, a “ready to go” mine wouldn’t sit there being “ready to go” for five years without generating any product or any revenue. So I’ll going to slot this one in as a reminder of the fact that mining stories are almost always junk, but we’ll look elsewhere for the coveted Turkey prize.
So yes, this year it was again a tough choice among some good candidates… but I’m making the difficult call to pass on Altucher’s Apricus, despite that tempting and unusually ludicrous 54,000% gain promise, and bestow the Turkey of the Year on Bonner & Partners’ tease of Indivior for Chris Mayer’s FOCUS… partly because that’s the most expensive of these newsletters ($2,500 a year — though it’s close, Mengel’s letter was $1,999, Altucher’s was $2,000, Del Real’s was the only one much lower at $299), and partly because I generally like Chris Mayer’s way of thinking (I’ve not subscribed to his letters, but his books are worth reading and he’s a good conference presenter)… it’s important to note that real turkeys can come not just from the obviously wildly speculative stock stories, and not just from penny stock letters or cryptocurrency or marijuana or graphite silliness, but they sometimes come from profitable companies recommended by people who you think make reasonable valuation decisions.
So that’s your Turkey for 2018, everyone, ladle on your gravy and chew away… and if you’ve got a different candidate you’d choose for “Turkey of the Year,” whether one culled from our tracking spreadsheets or a painful lesson from your own recent experience, let us know with a comment below.
A few caveats:
- We don’t know what the specific advice was from any of these newsletters — maybe they doubled down on the stock when it dropped, maybe they stopped out or changed their minds the day after we covered the tease, we don’t subscribe so we don’t know… because all we know about a stock is when it was teased as a world-beater, we set our tracking to just assume that you bought the stock on the day the newsletter teased it and held it forever.
- And as a corollary to that, this is not necessarily a reflection on the newsletter pundit who promoted the Turkey — yes, we should use this moment to remind ourselves that the marketing pablum skews our perception and has to be actively ignored, but sometimes the newsletter editors don’t even really have anything to do with the teaser pitches their publisher uses… and the overall performance of a newsletter’s portfolio is presumably often different from the performance of their most actively touted “teaser” stocks.
- I am far from perfect, of course. I make dumb decisions and choose bad investments sometimes, too (though I at least don’t promise anyone they’ll get 5,000% gains by following my ideas), and this is not meant as a criticism of those particular newsletters — I think of the annual Turkey Award as being a bit more light-hearted than that, since we all do dumb things sometimes, but also as a reminder… sometimes it’s important to remind ourselves that these promises of grandiose gains are marketing gibberish, and the best way to do that is by looking at a stock that seemed so enticing when it was promoted as a life-changing company a few months ago and now looks, without that glare of heated marketing hype, like the boring old also-ran that it probably was all along if we had had the patience to think it through.
And to close, as usual, I should share what I consider to be my biggest turkey on the year… which stock have I been most wrong on, or where did I make a particularly boneheaded call? From my Real Money Portfolio there are plenty of candidates, particularly among the tinier speculations I’ve made (though there’s plenty of weakness among the top holdings in the past couple months, too)… I’ve stuck with some speculations for too long or paid too much, like with USA Gold (USAU) and Equinox (EQX.V), and some of my larger holdings like NVIDIA (NVDA) have taken an ugly hit since October… but the biggest Turkey for me this year has probably been Clean TeQ (CLQ.AX, CTEQF), which, like the others, I still hold. I had a lot of confidence in CLQ because of the relatively near-term nature of their cobalt project in Australia and the strength of their management team and the cobalt markets. Lessons for me? Oh, right, it’s again “mining speculations stink.” Maybe I’ll learn that lesson someday.
Have a great Thanksgiving, everyone, and enjoy your Black Friday fight with the mall crowds or your peaceful family togetherness or whatever it is that gets you energized to finish out another year in style… I’ll be surrounded by loved ones, sitting on the couch, rubbing my belly in agony and rooting for the Detroit Lions (speaking of turkeys). Our palatial Gumshoe Headquarters is officially closed for the rest of the week now, so you’ll be able to rest without my blatheration until Monday — enjoy!